January

 3,  1996  

REVENUE  MEMORANDUM  CIRCULAR  NO.  01-­‐96    

SUBJECT   :   Clarification  on  the  provision  of  the  third  paragraph  of  Section  142(d)  of  the  
National  Internal  Revenue  Code  (NIRC),  as  amended,  by  Republic  Act  No.  7654  that  "The  twenty  percent  
(20%)  mark-­‐up  and  the  minimum  taxes  provided  in  this  Section  shall  be  automatically  increased  in  1996  
by  ten  percent  (10%)".  

TO   :   All  Internal  Revenue  Officers  and  Others  Concerned.  

Constructive  manufacturer's  or  importer's  wholesale  price  or  the  tax  base  used  in  computing  the  excise  
tax  for  cigars  and  cigarettes  is  defined  as  the  price,  including  the  amount  of  excise  tax  imposed  under  
Section  142,  Chapter  4,  Title  VI,  and  the  amount  of  the  value  added  tax  imposed  under  Title  VI,  both  of  
the  NIRC,  at  which  locally  manufactured  or  imported  cigars  and  cigarettes  are  offered  for  sale  to  the  
wholesalers  or  distributors  as  fixed  by  the  manufacturer  or  importer  and  registered  with  the  Bureau  of  
Internal  Revenue  plus  a  mark-­‐up  of  twenty  percent  (20%)  of  such  price.  Pursuant  to  Section  2(2.1)  of  
Revenue  Regulations  No.  1-­‐94  implementing  Sec.  142  of  the  NIRC  as  amended  by  R.A.  No.  7654,  the  
twenty  percent  (20%)  mark-­‐up  and  the  minimum  taxes  prescribed  in  the  said  Sec.  142  shall  be  increased  
automatically  in  1996  by  ten  percent  (10%).  

Under  Section  3  of  Revenue  Regulations  No.  1-­‐94,  the  respective  minimum  taxes  on  cigars  and  
cigarettes  are  as  follows:  

(a)   Cigars  —  There  shall  be  levied,  assessed  and  collected  on  cigars  a  tax  of  ten  percent  (10%)  of  the  
constructive  manufacturer's  or  importer's  wholesale  price  or  the  actual  manufacturer's  or  importer's  
wholesale  price,  whichever  is  higher.  

(b)   Cigarettes  packed  by  hand  —  There  shall  be  levied,  assessed  and  collected  on  cigarettes  packed  
by  hand  a  tax  of  fifteen  percent  (15%)  of  the  constructive  manufacturer's  wholesale  price  or  the  actual  
manufacturer's  wholesale  price,  whichever  is  higher.  
 

(c)   Cigarettes  packed  by  machine  —  There  shall  be  levied,  assessed,  collected  on  cigarettes  packed  
by  machine  a  tax  at  the  rates  prescribed  below  based  on  the  constructive  manufacturer's  wholesale  
price  or  the  actual  manufacturer's  wholesale  price,  whichever  is  higher.  

(1)   On  locally  manufactured  cigarettes  which  are  currently  classified  and  taxed  at  fifty  five  percent  
(55%)  or  the  exportation  of  which  is  not  authorized  by  contract  or  otherwise,  fifty  five  percent  (55%)  
provided  that  the  minimum  tax  shall  not  be  less  than  Five  pesos  (P5.00)  per  pack.  

(2)   On  other  locally  manufactured  cigarettes,  forty  five  percent  (45%)  provided  that  the  minimum  
tax  shall  not  be  less  than  Three  pesos  (P3.00)  per  pack.  
Accordingly,  effective  January  01,  1996,  the  twenty  percent  (20%)  mark-­‐up  and  the  minimum  taxes  for  
cigars  and  cigarettes  shall  be  automatically  increased  by  ten  percent  (10%)  as  illustrated  below:  

1.   Mark-­‐up   —   20%  x  10%   =   2%  

      20%  +  2%   =   22%  

          ====  

2.   On  locally  manufactured  cigarettes  which  are  currently  classified  and  taxed  at  fifty-­‐five  percent  
(55%)  or  the  exportation  of  which  is  not  authorized  by  contract  or  otherwise  the  minimum  tax  shall  be  
P5.50  per  pack  —  

P5.00  x  10%   =   P0.50  

P5.00  +  P0.50   =   P5.50  

      ====  

3.   For  other  locally  manufactured  cigarettes,  the  minimum  tax  shall  be  P3.30  per  pack.  

P3.00  x  10%   =   P0.30  

P3.00  +  0.30   =   P3.30  

      =====  

4.   For  imported  cigarettes  currently  taxed  at  55%  of  the  constructive  importer's  wholesale  price  or  
the  actual  importer's  wholesale  price  where  there  is  no  minimum  floor  tax,  the  tax  shall  be  based  on  
constructive  wholesale  price  or  actual  importer's  wholesale  price  +  22%  mark-­‐up  x  55%  rate  of  AD  
VALOREM  TAX,  whichever  is  higher.  

Computation  of  constructive  wholesale  price/pack:  

  Prior  —  Jan.  1,  1996   Jan.  1,  1996  

Wholesale  price  per  BIR  registration   P10.00/pack   P10.00/pack  

Add:  20%  mark-­‐up/22%  2.00   2.20  

  ————   ————  

Constructive  Wholesale  Price   P12.00/pack   P12.20/pack  

Tax  due  thereon  (55%)   P6.60   P6.71  

   =====   =====  

  Prior  —  Jan.  1,  1996   Jan.  1,  1996  

Total  number  of  packs  in  one  case   500   500  

Multiplied  by  applicable  tax  per  pack   P5.00   P5.00  

  ————   —————  

Excise  (Specific)  Tax  due  thereon   P2,500.00   P2,750.00  

  =======   ========  

On  imported  cigarettes.  —  The  ad  valorem  tax  shall  be  computed  based  on  the  constructive  importer's  
wholesale  price  or  the  actual  importer's  wholesale  price,  whichever  is  higher.  No  floor  tax  is  considered  
in  the  computation  of  excise  tax  pertaining  to  imported  cigarettes.  

ILLUSTRATION:  

"Y  CORPORATION",  a  domestic  corporation,  is  a  duly  BIR-­‐registered  importer  of  "ABC  CIGARETTES".  Its  
BIR-­‐registered  wholesale  price  for  the  said  imported  brand  of  cigarettes  is  at  P25.00  per  pack.  

Compute  the  ad  valorem  tax  due  if  Y  CORPORATION  imported  20  cases  of  "ABC  CIGARETTES",  each  case  
containing  fifty  (50)  cartons  of  ten  (10)  packs  per  carton.  At  the  time  of  importation,  Y  CORPORATION'S  
actual  wholesale  price  is  P29.00  per  pack.  

COMPUTATIONS:  

Computation  of  constructive  wholesale  price:  

  Prior  —  Jan.  1,  1996   Jan.  1,  1996  

Wholesale  price  per  BIR-­‐registration   P25.00/pack   25.00/pack  

Add:  20%  mark-­‐up/22%  5.00   5.50  

  ——————   —————  

CONSTRUCTIVE  WHOLESALE  PRICE   P30.00/pack   P30.50/pack  

   ===========   ==========  

In  this  case,  the  constructive  wholesale  price  of  P30.50  per  pack  shall  be  taken  because  it  is  higher  in  
amount  compared  with  the  actual  wholesale  price  of  only  P29.00  per  pack.  

Actual  wholesale  price   P11.00  

  ———  

Tax  due  thereon  (55%)   P6.05  

  ———  

Floor  tax  per  pack   P5.00   P5.50  

  ======  =====  

In  this  case,  since  applying  the  tax  rate  on  the  manufacturer's  constructive  wholesale  price  of  P12.20  per  
pack  results  in  a  higher  tax  take  the  determination  of  the  ad  valorem  tax  for  one  case  of  
cigars/cigarettes  to  be  removed  from  factory  premises  shall  be  based  on  the  constructive  wholesale  
price.  

Computation  of  the  Ad  Valorem  Tax:  

  Prior  —  Jan.  1,  1996   Jan.  1,  1996  

50  cartons  multiplied  by  10  packs  per  carton   500  packs   500  packs  

500  packs  multiplied  by  P12/pack   6,000.00  

  P12.20/pack     6,100.00  

Tax  due  thereon  (P6,000.00  multiplied  by  55%)   3,300.00  

    =======  

  (P6,100.00  multiplied  by  55%)     P3,355.00  

      ========  

Compute  the  amount  of  excise  tax  due  on  one  (1)  case  of  "YYY  Cigarettes"  containing  fifty  (50)  cartons  
of  ten  (10)  packs  per  carton.  These  are  locally  manufactured  cigarettes  packed  by  machine  and  taxable  
at  the  rate  of  55%.  The  minimum  tax  shall  not  be  less  than  P5.00  per  pack.  The  registered  wholesale  
price  per  pack  is  P7.50  but  the  actual  manufacturer's  wholesale  price  is  P8.50  per  pack.  
COMPUTATION  

Take  the  higher  amount  as  tax  base  which  is  P9.00  (P7.50  +  20%  thereof  constructive  manufacturer's  
wholesale  price).  

Computation  of  Excise  Tax  Due:  

  Prior  —  Jan.  1,  1996   Jan.  1,  1996  

Constructive  Price  per  pack  

  P7.50  +  20%  thereof   P9.00  

  P7.50  +  22%  thereof     P9.15  

Times  Tax  Rate   55%   55%  

Excise  Tax  Due  Per  Pack  P4.95   P5.033  

Floor  Tax  Per  Pack   P5.00   P5.50  

Note:   Apply  the  higher  tax  in  the  computation  of  excise  tax  due  

Computation  of  the  Ad  Valorem  tax:  

  Prior  —  Jan.  1,  1996   Jan.  1,  1996  

20  cases  multiplied  by  50  cartons/case   1,000  cartons   1,000  cartons  

1,000  cartons  multiplied  by  10  packs/carton   10,000  packs   10,000  packs  

10,000  packs  multiplied  by  P30/pack   P300,000.00  

  P30.50/pack   P305,000.00  

Tax  due  thereon  (P300,000  multiplied  by  55%)   165,000.00  

  (P305,000  multiplied  by  55%)   P167,750.00  

It  is  enjoined  that  this  circular  be  given  as  wide  a  publicity  as  possible.  

LIWAYWAY  VINZONS-­‐CHATO  

Commissioner  of  Internal  Revenue